Tanzania Land Risks for Foreign Investors

Tanzania Land Risks for Foreign Investors This article addresses ten practical questions frequently raised by investors and project sponsors when assessing investment opportunities involving land in Tanzania. 1. Can we bypass the TISEZA process by forming a Joint Venture with a Tanzanian partner who owns 51% of the shares? The Land Act states that a company who majority ownership is by non-citizens, may only obtain right of occupancy for purposes of investment as approved by the Investment & Special Economic Zones Act. Such ownership shall be through a derivative right for the purposes of investment which is approved by the Tanzania Investment and Special Economic Zones Authority (TISEZA). The relevant land must be designated for investment purposes, gazetted and allocated to TISEZA which shall create derivative rights to investors.

Accordingly, granting 51% of shares to a Tanzanian partner with the intent of bypassing the restrictions imposed under the Land Act, rather than establishing a genuine partnership for undertaking investment activities in the country will be contrary to the law. Also, it poses a risk to the foreigner because any restructuring or fraudulent acts by the Tanzanian partner can leave the foreigner unable to legally enforce his/her rights before courts of law because the whole arrangement was a sham and meant to circumvent the law. 2. If our investment fails, can a bank foreclose on and sell a 'Derivative Right'? Strict foreclosure is abolished under the Land Act whether or not the underlying title is a certificate of right of occupancy or derivative right. However, mortgage enforcement through statutory sale is permitted.

The Land Act sets out clear steps which a mortgagee has to follow in case the mortgagor is in breach, including issuing a notice of breach, a notice of auction, among others before exercising the right of sale of the mortgaged property. The Land Act defines a “derivative right” as a right to occupy and use land created out of a right of occupancy and includes a lease, a sub-lease, a licence, a usufructuary right and any interest analogous to those interests. When an investor applies for a derivative right, after the relevant procedures are followed, TISEZA will issue a leasehold agreement to the investor and the ownership of the title will be in the name of TISEZA, whilst the leasehold interest will be registered on the title. The Land Act allows the derivative title which is a leasehold agreement between TISEZA and investor to be mortgaged as security for a debt facility.

Upon breach of the facility terms, the mortgagee may auction/sell the remainder of the term in the leasehold agreement and the developments made on the land to recover the amount in default. However, the acquirer must be willing to continue with the investment activities which were pre-approved by TISEZA, for which the derivative title was issued for. Local banks accept derivative title as security for a debt facility and the procedures for registering the mortgage of the leasehold under derivative title are clearly established under the law, and TISEZA has to consent to the mortgage of the derivative title. 3. What happens if we sign a 'Long Lease' with a local landowner instead of going through the TISEZA?

Provided it is a legitimate investment initiative, the foreign investor may either opt for a derivative title route, or enter into a long lease agreement with a local land owner, provided the land is general land. For village land, there are restrictions imposed against foreigners entering into lease agreements of any nature, unless the land is converted from village to general land. 4. If the government reclassifies Village Land to General Land for an investment project, who handles the compensation? The investor is responsible for handling compensation to the project affected persons (PAPs). This is a conversion which is initiated by the investor for the purpose of converting village land to general land and be able to obtain a right of occupancy and derivative title from TISEZA.

The process of paying compensation requires extensive consultation with the village council, the commissioner for lands, the PAPs, undertaking of valuation exercise, getting the valuation report approved by the Chief Government Valuer, payment of compensation and assisting the PAPs to vacate the investment area. Usually, the process is time consuming and requires close involvement of the Government authorities, and it is advisable to initiate the process with the support from TISEZA. If the valuation exercise or amounts are disputed by the PAPs, it can tie a project for years, because such disputes have to be resolved in court, unless amicable settlement between the investor and the affected PAP is attained. 5. What happens to the project land if our TISEZA Certificate of Incentives expires or is cancelled?

Regardless of whether the investor paid the purchase price for the land or otherwise, when the land is designated for investment purposes and TISEZA issues the investor with a derivative title through leasehold, the ownership of the land will be in the name of TISEZA. Hence, the investor’s right to occupy and use the land is linked to the leasehold granted to it by TISEZA and strictly in compliance with the project requirements as disclosed to and approved by TISEZA. If there is breach, TISEZA may, subject to issuing the relevant notice, revoke the derivative title and the leasehold terminates. Upon such termination, TISEZA retains the land and the developments therein subject to the relevant processes under the law. 6. Does a Mining Licence or Prospecting Licence give us automatic surface rights to the land?

A mining or prospecting licence grants rights to the sub-surface minerals as specified in the relevant licence. Surface rights are subject to separate processes and subject to compensation under the Land Act and its regulations. The Mining Act states that, the rights conferred to the mineral right holder should be exercised reasonably and shall not be exercised so as to affect injuriously the interest of any owner or occupier of the land.

If in the course of prospecting or mining operations, any disturbance of the rights of the lawful occupier of any land or damage to any crops, trees, buildings, stock or works thereon is caused, the registered holder of the mineral right by virtue of which the operations are carried on, shall be liable to pay the lawful occupier fair and reasonable compensation in respect of the disturbance or damage according to the respective rights or interest of the lawful occupier in the property concerned. Accordingly, co-existence between the mineral rights holder and the lawful occupier is possible, to the

extent the lawful occupier is not negatively affected by the mining or prospecting operations. Otherwise, the mineral rights holder is required to undertake valuation, pay compensation and/or relocate the lawful occupier. In practise, it is advisable to ensure that the PAPs are paid compensation and/or relocated before commencement of mining or prospecting operations, to allow the mineral rights holder access to surface rights for the purpose of construction of the relevant facilities directly related to mining or prospecting operations. If payment of compensation to all PAPs is not possible, the mineral rights holder should at least pay compensation and/or relocate the PAPs who are residing/undertaking human activities at the immediate area(s) where mining or prospecting operations will be undertaken initially.

Also, the borders of the mineral rights should be secured to prevent new persons from entering the mining area and illegally claim to be entitled to compensation, whilst they are new occupants after issuance of the mineral rights. 7. How do we handle the 'speculative building' boom that happens right after we apply for a mining licence? (a) Application for a prospecting licence usually precedes application for a mining licence. The Mining Act requires a mineral rights holder, which includes a holder of a prospecting licence to demarcate the boundaries of the mineral right area and keep visible markers. This is meant to indicate to third parties, including villagers that the area now falls under the mineral rights boundaries. If this initiative is observed, it deters entry of new occupants who weren’t original occupants.

(b) Security of the prospecting and/or mining area is on the mineral rights holder. The obligation to keep the entire mineral rights area secured, using various options, including hiring of the police and the private security is meant to ensure that, among others, no unauthorised persons access the mineral right area without a permit. This excludes the persons who have historically been residing within the mineral rights area and would be known to the security and mineral rights holder personnel.

(c) During the prospecting phase, the mineral rights holder should undertake the exercise of identifying the occupants who are within its prospecting area, even if the prospecting licence holder does not intend to pay the compensation right away since prospecting operations have only begun and there is no need to incur substantial costs for compensation if the findings are not commercially viable to warrant application for a mining licence. This initial verification will allow the prospecting licence holder to identify the occupants who entered the mining area after the grant of the prospecting licence, hence not entitled to compensation.

(d) Engagement of the police and the village authority from the onset during the prospecting operations will allow managing of the mining area and prevention of new occupants from entering the area which is subject to a prospecting licence and a potential future mining licence. (e) If any PAP(s) are paid compensation, regardless of when such compensation was paid, they must vacate the project area. It is a great risk and strongly not advisable to pay compensation and out of good intentions to allow the PAP(s) to remain on the project land simply because the operations have not started. Any continued stay after compensation is paid will cause issues later, and puts the mineral rights holder at a risk of being required to pay them compensation again.

(f) Any new occupant who enters the mineral right area after the prospecting licence is granted should be swiftly notified and required to leave as opposed to allowing them to linger or farm within the project area, no matter how far off the main operations because eventually they will establish their right to stay, hence being entitled to compensation. Alternatively, signature of contracts when they enter the mining area where they expressly accept that they are just undertaking limited human activities and are aware they are entering a mining area afresh can assist in case of future claims. The above will greatly assist to manage fraudulent occupants who claim that they are entitled to compensation.

Usually, mineral rights holders delay the identification of occupants from the onset due to budgetary reasons but eventually end up with higher budget for compensation due to sudden invasion of their project land after applying for a mining licence. 8. If our mining lease sits on unmapped Village Land, can we bypass the Village Council and deal directly with the Ministry of Minerals? This is not advisable. Whilst the Ministry of Minerals and Mining Commission support your mining project, including issuance of the relevant licence, bypassing the village authority will be a breach of the law and will hinder the implementation of the project. There are various legal requirements imposed under the law which would not be possible to implement unless the village authorities are engaged and issue the relevant approvals.

Also, as a project developer, you can expect serious community backlash if the village authority is not involved because the community expect to get information and update on the mining project activities from their immediate village authorities. 9. What are our legal liabilities if our sub-surface operations cause environmental damage outside our surface boundaries? The mining company will be held liable under the environmental laws if the mining operations cause environmental damage outside of the surface boundaries. This is possible to the extent that the specific environmental damage can be tied to the mining project, and hefty penalties can be imposed.

Author: Amalia Lui Africa Projects, Investment, Policy & Strategy Advisor | Business Development & Cross-Border Deal Execution | Government Relations, Risk & Legal Insight | 16+ Years Driving Growth Across Multiple Jurisdictions Email: amalia@amaluitz.com Linkedin: https://www.linkedin.com/in/amalia-lui-95548317/ Disclaimer The views expressed in this paper are those of the author only and should not be considered as an official interpretation, defamatory, or interference of any legislation, laws, or policies of any country including Tanzania. The contents of this paper should not under any circumstances be reproduced or used without the express written consent of the Author. It

should not be considered as legal advice to any of its recipient(s) and should not be relied upon without obtaining further legal advice. We accept no liability for any loss occasioned or suffered due to the contents of this paper. The information contained herein is general and is not intended to address the circumstances of any particular deal. Although effort has been made to research and share the correct information, we do not provide any guarantee to such information.